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Observations on the "Low Quality, High Beta" Rally |
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Monday, 28 September 2009 |
While the Dow Jones Industrial Average Index clearly has a ways to go before reaching its October 9, 2007 peak of 14,164, we have nonetheless witnessed a remarkable rally since the March 9, 2009 low of 6,547 as the index on August 31, 2009 reached 9,496. Many in the business have labeled this rally as driven by “low quality” and “high beta” stocks. While there is a good amount of data to back up this claim, our ongoing monitoring efforts in MasterManagerSM have led us to believe there are two sides to this story. To shed some additional light on this topic, we thought it would be worthwhile to challenge a few of our sub-advisors on how they integrate quality into their investment process, and whether they agree or disagree that the 2009 rally is a low quality, high beta event. We then contrast their responses. The overall objective of this short piece is to pass on recent market observations about active management performance with a focus on the notion of “low quality” in the current market rally.
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Research 